More About Pre-Closing Inspections

Getting Ready for Closing

For those of you who have survived the process of finding an apartment, negotiating the contract, obtaining financing and getting the myriad of players involved to agree to a closing date, there is still one step left before closing--the pre-closing inspection or "walk through". Most co-op and condo contracts give the buyer the right to inspect the apartment at reasonable times and within 48 hours prior to closing. Buyers want the right to inspect the apartment from time to time prior to closing so that they can have their architect or designer take measurements and have contractors look at the space before renovation contracts are signed. Most contracts provide that the buyer will accept the condition of the apartment at closing as existed on the date of the contract. Accordingly, an inspection immediately prior to closing is necessary to insure that you get what you bargained for.

Who Should Inspect the Apartment?

The world is divided into two kinds of people: those of us who can and do fix things and those of us who hire people to fix things. For those of us who simply don't have a clue about plumbing, water damage, buckling floors, inoperative electrical outlets, heating and cooling systems, light fixtures and whatever else might be going on in your particular apartment, consideration should be given to having someone do the "walk through" with you who will be able to spot potential problems with the condition of the apartment. In most cases, the walk through is performed by the soon-to-be new owner and by the brokers. The vast majority of the time, a walk through with the brokers will be sufficient to identify whether there have been any changes to the apartment since the date that the contract was signed. Here's a good rule of thumb: If you have been satisfied with the performance of your real estate broker throughout the purchase process, you can rely on your broker to assist you with the walk through. If your broker has been ineffective during the purchase process, make sure that someone other than your broker assists you with the walk through.

Special Situations

There are situations where having a professional (such as an architect, engineer or contractor) accompany you on the walk through makes good sense. Here are a few:

New Construction. If you are buying an apartment that has just been built, and there is a contractual obligation for you to complete a "Punch List", it is recommended that you have a professional assist you with the walk through. In most new condos (there are almost no new co-ops), where you are buying a brand new apartment, there will inevitably be minor items that will have to be completed after closing. These items are identified immediately prior to closing and are listed on the punch list that is then attached to the contract. The punch list is delivered at the Closing and signed off by both the sponsor and the buyer. There are numerous items that the average buyer will miss without the assistance of a professional who can see past the fresh paint (assuming the sponsor is obligated to paint the walls, which is not always the case). If items are not brought to the sponsor's attention on the punch list, it is doubtful that the sponsor will address these items after closing. The best person to help you with this type of inspection is probably a contractor who has experience with residential construction or renovation. Contractors practically live on job sites and know what to look for when an apartment in nearing completion.

Repairs By Seller. If your seller has been obligated to make repairs to the apartment, it is essential that a professional assist you with the walk through. For example, if prior to closing, a leak has occurred in the apartment and the floors were damaged, you must determine whether the leak has been repaired in all respects and whether the floors have been properly repaired or replaced.

Environmental Issues. Unfortunately, from time to time, serious mold conditions can develop from water damage. If a mold condition is discovered in your proposed apartment, it is essential that environmental professionals determine whether the problem has been eliminated.

Mechanical Systems. If repairs are required to any mechanical system in the apartment, the walk through must be conducted with a professional knowledgeable in that specialty. Plumbing, electrical or HVAC repairs or replacements may require NYC Building Department "sign offs". Accordingly, it is important to have the situation handled by a licensed contractor who makes such repairs as a part of his or her everyday work. Don't use Uncle Phil to confirm that the blown electrical circuit is now functioning properly.

What to Look For

If the circumstances don't require professional assistance during the walk through, here are some suggestions as to what to look for during your inspection:

Make sure to test all appliances, air conditioning or heating units, plumbing fixtures and light fixtures.

If the apartment has hardwood floors, make sure that the floors were not damaged when the seller moved his or her possessions out.

The apartment should be delivered "broom clean and vacant of all tenancies". If the seller has done an inadequate job of cleaning the apartment before closing, an adjustment should be made at closing to reimburse you for the cost of hiring someone to clean the apartment prior to the time you move in

Seller's can have a funny habit of leaving stuff that they don't want and taking stuff they were supposed to leave. The seller should be obligated to remove any unwanted personal property as soon as possible after the closing. Items that should have been left in the apartment but were removed must be adjusted for at closing.

New York City is awash in water leaks. Make sure you check all floors, ceilings and walls for any evidence of water damage.

What to do if there's a Problem

There are three kinds of problems that can occur at closing time:

A minor problem that can be worked out at closing.

A major problem that may or may not be able to be worked out at closing.

A problem that is not discovered until after closing.

The Minor Problem

When a minor problem occurs, the usual result is that the parties will reach an economic understanding as to the value of the problem. Scratches on the floor, an air conditioner that died, a removed towel rack, a previously unseen imperfection--these are items that the seller and buyer can resolve by the seller “ponying up” some bucks at the closing table. In the vast majority of cases, this type of financial settlement will suffice to make the problem go away. In some cases, an escrow of funds (held by one of the attorneys) will be agreed to, until the seller fulfils some obligation, like getting his junk out of the apartment within a stated period of time. Again, these situations usually get resolved and everyone walks away relatively comfortable with the result.

The Major Problem

When a major problem occurs, more caution is required in finding an adequate remedy for the buyer. If a serious water leak occurs prior to closing, or if there is fire damage or some other material change in the condition of the apartment, the parties must work out a more significant escrow of funds to insure that the problem will be fixed by seller within a reasonable time. The financial terms of the arrangement have to be significant enough so that the seller has incentive to get the work done. When a real problem arises, the buyer often prefers to do the work rather than have the seller take care of the problem. As long as the buyer and the buyer's attorney are satisfied with that result, the closing can be completed. If the nature of the problem is so serious that the physical integrity of the apartment is in question, or if the buyer just isn't getting what the buyer bargained for (like a subtenant who is refusing to move out) it may be necessary or prudent to adjourn the closing. Adjournments occur every now and then, but are the exception and not the rule. Most issues get resolved at the closing table.

The Undisclosed Problem

Sometimes the seller fails to disclose a problem prior to closing and the buyer finds out about the unwanted condition after he or she moves in. What should a buyer do in such a situation? A buyer should always consult with his or her attorney if an undisclosed negative condition is discovered after the closing. Each situation is different and must be evaluated on its own. Analysis of the seller's liability for an undisclosed problem can get technical and review of the particular contract of sale is required. Standard form coop contracts tend to give buyer's a bigger window to go back to the seller with problems. Even then, chasing the seller is always difficult and costly. If the cost of rectifying the condition costs less than a new flat screen (let's say $1,000.00), it’s probably just not worth the time, effort and cost to potentially make your seller do the right thing. That decision is obviously up to you.

Residential Reality: See You at the Closing

One of the first questions that the seller's attorney usually asks at the start of the closing is "How did the walk through go?" Invariably, the answer is "Fine". In almost all cases, the buyer will get what he or she bargained for when the contract of sale was executed. As long as you put as much effort into completing the transaction as you did in finding the apartment, everything should work out as anticipated. Flush the toilets, run the dishwasher, flip the light switches. You're almost home.

A lawyer is not a toaster...

Asked and Answered

I don’t smoke, but the smell of smoke is wafting into my apartment from my neighbor. Is there anything that can be done to remedy this condition?

My mortgage lender has informed me that the cooperative in which I am purchasing an apartment has inadequate insurance coverage and has requested that the co-op increase its coverage to meet the bank’s new minimum requirements. Can the bank withdraw its underwriting due to a lack of insurance coverage by the co-op?

A co-op owner asks: I have found that maintenance is usually higher in coops than in condos because of the contribution by the shareholders to the building's underlying mortgage payments. In condos, the unit owners only pay for real estate taxes and common charges for common areas. Will the monthly maintenance be reduced after the underlying mortgage has been fully amortized?

We just submitted the Board package and we realize that we neglected to disclose a lawsuit against my husband’s company, in which my husband is named as a defendant? The lawsuit is covered by insurance and my husband is indemnified from liability by his employer. Should we notify the managing agent and amend the purchase application?

We are negotiating the contract and we just found out that there is a substantial assessment that will go into effect the month that we close on the purchase. Should the assessment be deducted from the purchase price at closing?

I am buying an apartment in a small building and I just found out that the elevator is being renovated and will be out of service for three months. Do I have to close if the elevators will not be operational on the closing date?

My husband and I own a co-op and we would like to transfer the shares to an irrevocable trust that we recently created for estate planning purposes. Will our cooperative allow us to make that transfer?

My boyfriend and I are interested in buying our first apartment in a new construction condominium. Our mortgage broker tells us we should qualify for a 90% loan, but it will be a close call for the bank. The sponsor wants us to sign a “no contingency” contract. Is that a good idea?

We are considering a condo purchase in a new development that is only 25 percent sold. There is a bank that has approved the project and will make the loan, but should we be concerned about the number of units that the sponsor still has to sell?

We are buying an apartment that has been extensively renovated. Among other things, the size of the master bath was significantly increased. Can we rely on a representation in the contract that all required approvals were obtained from both the Cooperative Corporation and from the New York City Department of Buildings?

We received a draft of the contract of sale for the cooperative apartment we are buying and our social security numbers are on the front page! Our attorney told us that we will have to provide our identification numbers to the managing agent for a credit check as a part of the Board package, so it’s not a big deal. Do we have to list our socials on the contract?

I am considering an apartment in a new construction condominium. There is park under development by New York City that will greatly enhance the value of the condominium when it’s completed. Although the sponsor’s salesperson indicated that the first phase of the park will be completed in the next year or so, the Offering Plan contains a “Special Risk” that states that the sponsor gives no assurance as to when, if ever, the park will be completed. Who and what should I believe?

We are in negotiations to purchase a co-op apartment on the Upper East Side. Our lawyer reviewed the minutes and discovered that the building has a bedbug infestation. Should we go forward with our purchase?

At my closing, I had to reimburse the Seller for his New York State “STAR” rebate that appeared on the maintenance statement for the month following the Closing. What exactly is the STAR rebate and will I be able to obtain the rebate as well?

I just found out that the seller will be unable to close for an additional two weeks. As a result, I will have to extend my rate lock, at a cost of $1,200.00. Is the seller obligated to reimburse this cost?

We are selling our apartment to our neighbor, but our neighbor can’t afford to purchase our apartment unless she sells her apartment. Her lawyer wants the contract to provide that the purchase of our apartment is contingent upon the sale of her apartment. Our lawyer is advising us against including a provision that makes the transaction contingent on the sale of the buyer’s apartment. Should we go along with the contingency?

We are selling our co-op and the buyer is not obtaining a mortgage in connection with the purchase. The contract required the Board package to be submitted within 10 business days after the fully-executed contract was returned to the buyer. The buyer is two weeks late in submitting the package. Is the buyer in default?

I’m selling my condo and I have not been able to pay my common charges for the past six months (I lost my job). I have a buyer for the apartment, but the Board of Managers will not release the Waiver of the Right of First Refusal, unless I pay the outstanding balance of the common charges. I’m between a rock and a hard place, as I don’t have the money. What should I do?

I am combining two adjacent apartments that I own and I want the co-op to issue one stock certificate for both apartments. There is an outstanding UCC lien against one of the apartments. The other apartment is owned free of any liens. Can the co-op object to the combination?

My attorney asked me to contact the managing agent to verify the maintenance and assessment information that's disclosed in the contract for the apartment I intend to purchase. Isn't that my attorney's job?

Our application to purchase a co-op was turned down by the Board without an interview. Although our attorney asked the managing agent to disclose the reasons for the Board’s decision, none were given. Can the Board just turn our application down without any explanation?

I am buying a co-op in Manhattan. The managing agent is located in Brooklyn and refuses to send a closing representative to the attorney’s office for the buyer or seller located in Manhattan. Will everyone have to go to Brooklyn for the closing?

We are purchasing a condo that was occupied by a tenant at the time the contract was executed. We just did the walk through and there is damage to a portion of the floor that was hidden by the tenant’s furniture. Are we entitled to a repair credit at Closing?

A loan commitment was issued, but the bank requested an explanation for a $14.00 missed credit card payment that occurred nine years ago. Could the bank withdraw its commitment as a result of this missed payment?

A leaking pipe inside the wall of my co-op was recently replaced. The following month, my maintenance account was charged $1,000.00 on the theory that the pipe only serviced my apartment. Am I responsible for this repair?

We submitted our Board package a month ago, but the Board has not scheduled an interview or asked for any additional information. To make matters worse, the managing agent won’t give us any indication as to what’s going on. Is there anything we can do?